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With the exemptions on stamp duty and minimum 10% discounts for residential properties under the Home Ownership Campaign, now is a better time than ever to purchase a house.
But for those planning to purchase a house for investment purposes, there is a dilemma. While waiting for the value to appreciate, it would be wise to rent it out to earn some returns.
Long-term rental (LTR) can get messy in terms of collecting the rent every month. So, is short-term rental (STR), such as via Airbnb, a better option?
Michelle Tham, director of VH Premier Group which owns homestay brand Victoria Home, told Property Advisor that comparing STR and LTR is like comparing apples and oranges, especially if the properties are in varying states of repair.
Another common mistake is to compare gross revenue from STR to normal rental.
In fact, after factoring in operating costs (for example, housekeeping, laundry, cost of utilities and labour cost), the final returns will not be too far off for both rental options for properties that are in a similar condition.
“Instead of concentrating on rental returns, we wish to highlight that STR is a strong alternative to property investors in this oversupplied property market.
“First, LTR relies primarily on the working adults and student markets. STR (and mid-term rental [MTR]) taps local and foreign tourists as well as business travellers.
“Generally, STR offers more flexibility to property owners. With LTR, owners tend to spend more time securing a replacement tenant. Meanwhile, with STR and MTR, the turnover of guests/tenants is faster, hence, the returns are better overall,” said Tham
She said the average returns from STR are potentially 10% to 20% higher than LTR returns. Some buildings can fetch even higher rates depending on locality and facilities.
An Airbnb owner, Lam, said his income from Airbnb depends on the season.
“To a certain extent, STR can provide better profit, provided you get enough guests.
“For example, during peak season, rooms are fully booked and I can earn RM2,000 to RM3,000, which is quite promising since I provide only four rooms in my homestay. But during off-peak season, I sometimes record zero guests for a couple of weeks.”
An Airbnb spokesman told Property Advisor that last year alone, Airbnb guests spent more than RM4.4 billion in Malaysia, which contributed as much as RM3.98 billion to gross domestic product and supported over 50,000 local jobs.
“We know many Malaysian families depend on Airbnb to earn extra income and grow their small businesses.
“In 2019, close to 40% of local Malaysian hosts said hosting on Airbnb helped them remain in their homes and more than 25% said it helped them avoid eviction or foreclosure.”
Is it legal? Under most circumstances, it is legal to operate STR in Malaysia. However, property owners are advised to seek confirmation from the building’s joint management body (JMB) on the management’s rules before they decide to operate STR in an apartment or condominium, whether on their own or through a property management company (STR operator).
“Based on our management experience, a substantial number of building managements in Malaysia allow STR in the building.
“In fact, many JMBs are friendly and cooperative towards accommodating STR operators’ requests in terms of unit and guest management,” said Tham.
“A public consultation was held on Oct 9 last year by the Malaysian Productivity Council (MPC) under the authorisation of the Malaysian Tourism Board.
“MPC presented a set of guidelines on short-term residential accommodations covering such issues as licensing, safety, maximum occupancy, nuisance control and taxes. The legalisation process is underway in Malaysia and we are expecting clearer frameworks and rules in the near future.”
As it is, earnings from Airbnb can already be recognised as income when applying for a bank loan, depending on the circumstances.
“If your property is operated by a property management company/STR operator, the monthly statement provided by the operator can serve as proof of income in applying for a bank loan. If property owners operate the STR themselves, they can treat it as an income for loan purposes too.
“However, proof of income might be complicated by the number of transactions shown in their accounts, which are usually unconsolidated, depending on the number of units they manage and the scale of management. Very often, the income amount shown is gross revenue (including all operating costs); hence it might not reflect the accurate income that the owners would have received.”
Lam suggested several points to consider when investing in a house for STR purposes.
“A good location (preferably near local attractions and public transport) is still the number one concern. Other than that, the operator must always be there to communicate with the guests though it is not necessary to stay there.
“The operator also needs to maintain cleanliness and hygiene, which cannot be compromised on. And selecting a special theme for the homestay will leave a lasting impression on guests.”
VH’s Tham added that building facilities play a role in attracting guests. “STR guests value good facilities such as an infinity pool, a gym with good equipment, barbecue facilities and so on.”
This article was written by Adlene Hanna of PropertyAdvisor.my, Malaysia’s most comprehensive source of property data, property analytics and insights.